Mortgage Insurers Raise Bar: Home Buyers Face Stricter

 Standards, Higher Costs

Wall Street Journal ^ | 15 July 2008 | AMY MERRICK

...Stung by growing defaults, lenders are offering borrowers fewer ways to avoid purchasing private mortgage insurance. Mortgage insurance, required for buyers who are unable to make a full down payment or who have insufficient credit histories, reimburses lenders in the event of a borrower default. But over the past few months, mortgage insurers have been declaring more and more of the U.S. a "declining market," raising the requirements and making such insurance harder to obtain.

...For a time, it seemed mortgage insurers were going the way of the dinosaur. During the housing boom, when lending standards loosened drastically, borrowers often avoided mortgage insurance by taking out two loans, one that covered 80% of the purchase price and a second, "piggyback" loan to cover the once-traditional down payment.

...mortgage insurance with the balance of all mortgage loans underwritten during the same period, jumped from about 8.5% in early 2006 to about 20% in the fourth quarter of 2007, according to several insurers' filings with the Securities and Exchange Commission. (The rate dropped to 13% in the first quarter as insurers increasingly focused on more credit-worthy borrowers.)

...Nowadays, insurers are frequently requiring at least a 10% down payment, compared with previous standards that might have included a 3% to 5% down payment. Prices also are rising. Next month, for example, MGIC plans to charge an annualized premium of up to 0.75% of the loan balance for fixed-rate, 30-year mortgages with a 10% down payment, up from 0.67% this month. The company doesn't plan to change course anytime soon. "Housing cycles don't correct quickly," says MGIC's Mr. Zimmerman

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